Deutsche Bank A.G. (NYSE: DB) initiated coverage today on the U.S Life Insurance industry. While they do have some Buy recommendations in the current report. their bias is decidedly bearish. If the overall thesis and the current metrics they are concerned about prove correct, it could be a very difficult year for an industry with many peers in other insurance sub-sectors taking hits by Superstorm Sandy.

In today’s initiation, analysts at Deutsche Bank cited several specific reasons for their bearish views on the industry. These include a prolonged low interest rate environment, weak employment markets and equity market uncertainty. They cite these issues as ones that not only can pressure return on equity (ROE), but can increase the risk of balance sheet impairment.

Two companies did stand out and were started with Buy ratings. Prudential Financial Inc. (NYSE: PRU) and Unum Group (NYSE: UNM) were both cited as standouts in an otherwise dismal field. The analysts see Prudential having the ability to dramatically increase its business in the international markets, while Unum should be able to leverage pricing changes. Both companies are viewed as turnaround stories that are less market sensitive and have strong capital positions.

Four other companies were started with Hold ratings. They include Lincoln National Corp. (NYSE: LNC), MetLife Inc. (NYSE: MET), AFLAC Inc. (NYSE: AFL) and Principal Financial Group Inc. (NYSE: PFG). Deutsche Bank cited additional specific risk areas of concern regarding the industry. Those include balance sheet impairment, the possibility of a double dip recession and, as always, government regulation. They did indicate that an economic recovery and improvement in the yield curve (rising rates) could prove beneficial to the sector.

One interesting thing to note is the insurance industry is viewed as a high beta (volatility) sector. This is due in part to the companies being subject to weather-related and other natural disasters, like Superstorm Sandy, which ravaged parts of the East Coast. If you want an apples-to-apples comparison, that is really more pertaining to property and casualty insurance carriers. In life insurance, it boils down to balancing projected payments versus projected liabilities for 10 to 35 years (or more) into the future. Deutsche Bank suggests in its report that these names are much better viewed as short-term trade ideas rather than long-term investments. That is a rare call by any Wall St. firm.

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